UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from:
____________________ to ____________________________
Commission File Number 000-26463
----------------
MILITARY RESALE GROUP, INC.
---------------------------
(Name of small business issuer as specified in its charter)
New York 11-2665282
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2180 Executive Circle
Colorado Springs, Colorado 80906
--------------------------------
(Address of principal executive offices)
(719) 391-4564
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of March 31, 2002, there were 7,878,554 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
MILITARY RESALE GROUP, INC.
FORM 10-QSB/A
Amendment No. 1
INDEX
Page No.
INTRODUCTORY NOTE........................................................................... ii
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 2002 and December 31, 2001...................... 1
Statements of Operations - Three months ended March 31, 2002 and 2001....... 2
Statement of Stockholders' Deficit - From October 6, 1997
(inception) through March 31, 2002.......................................... 3
Statements of Cash Flows - Three months ended March 31, 2002
and 2001.................................................................... 4
Notes to Financial Statements............................................... 5
Item 2. Management's Discussion and Analysis or Plan of Operation................... 6
Signatures ............................................................................ 11
i
INTRODUCTORY NOTE
We are filing this Form 10-QSB/A in order to amend and restate the
information disclosed in Items 1 and 2 of Part I. The principal changes we made
were as follows: (i) we revised our statement of operations to recognize
additional interest expense relating to the beneficial conversion feature of
$205,000 aggregate principal amount of convertible promissory notes that were
issued in the three months ended March 31, 2002 and (ii) we revised the manner
in which we accounted for the issuance of shares of our common stock in the
three months ended March 31, 2002 to certain consultants of the Company,
including Edward T. Whelan, our Chief Executive Officer. This Form 10-QSB/A does
not necessarily reflect events occurring after the filing of the original Form
10-QSB.
ii
MILITARY SALES GROUP, INC.
Balance Sheets
(Unuadited)
March 31, December 31,
ASSETS 2002 2001
-------- ------------
Current Assets
Cash ...................................................... $ 54,581 $ --
Accounts receivable - trade ............................... 384,233 441,058
Prepaids .................................................. 3,229 6,708
Inventory ................................................. 315,834 252,430
Deposits .................................................. 23,218 20,406
----------- -----------
Total Currents Assets .................................... 781,095 720,602
----------- -----------
Fixed Assets:
Office equipment .......................................... 2,741 9,121
Warehouse equipment ....................................... 205,044 203,132
Vehicles .................................................. 64,366 64,366
Leasehold improvements .................................... 2,440 2,440
Software .................................................. 15,609 15,609
----------- -----------
290,200 294,668
Less accumulated depreciation ............................. (112,883) (102,257)
----------- -----------
Net Fixed Assets ......................................... 177,317 192,411
----------- -----------
TOTAL ASSETS ............................................... $ 958,412 $ 913,013
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade .................................. $ 1,039,543 $ 1,047,207
Accrued expenses .......................................... 31,000 --
Accrued interest payable .................................. 265,657 60,657
Bank overdraft ............................................ -- 1,349
Notes payable - current portion ........................... 387,535 260,522
----------- -----------
Total Current Liabilities ................................ 1,723,735 1,369,735
----------- -----------
Long-term debt
Notes payable .............................................. 83,460 91,121
----------- -----------
Total Long-term debt ..................................... 83,460 91,121
----------- -----------
Total Liabilities ........................................ 1,807,195 1,460,856
----------- -----------
Stockholders' Equity
Common stock, par value $.001, 60,000,000 shares
authorized, 7,878,004 and 7,505,004 issued and outstanding
at March 31, 2002 and December 31, 2001, respectively .... 788 750
Additional paid-in capital ................................ 522,177 407,150
Retained deficit .......................................... (1,371,748) (955,743)
----------- -----------
Total Stockholders' Equity ............................... (848,783) (547,843)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 958,412 $ 913,013
=========== ===========
See accountant's review report.
1
MILITARY SALES GROUP, INC.
Statement of Operations
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2002 2001
---- ----
REVENUES:
Gross Sales ...................... $ 1,357,584 $ 1,024,983
Commission sales - net ........... 59,674 65,424
----------- -----------
Total Revenues ................... 1,417,258 1,090,407
----------- -----------
COST OF GOODS SOLD: .............. 1,238,921 971,418
----------- -----------
GROSS PROFIT ..................... 178,337 118,989
----------- -----------
EXPENSES:
Salary and payroll taxes ........ 90,165 100,504
Professional fees ............... 93,000 7,770
Occupancy ....................... 55,262 26,313
General and administrative ...... 109,710 46,171
Amortization/depreciation ....... 10,627 8,760
Lease and auto/truck expense .... 24,408 25,628
----------- -----------
Total Operating Expenses ....... 383,172 215,146
----------- -----------
OTHER REVENUES & EXPENSES:
Interest expense ................ (211,170) (1,265)
Interest income ................. -- --
----------- -----------
Total Other Revenues & Expenses (211,170) (1,265)
----------- -----------
NET LOSS ......................... $ (416,005) $ (97,422)
=========== ===========
Per share information
Weighted average number
of common shares outstanding 7,705,004 5,360,000
=========== ===========
Net Loss per common share ........ $ (0.05) $ (0.02)
=========== ===========
See accountant's review report.
2
MILITARY SALES GROUP, INC.
Statement of Stockholders' Equity
(Unaudited)
Common Stock Additional Total
--------------------------- Paid-In Retained Stockholders'
Shares Amount Capital Deficit Equity
-------------- ----------- ----------- -------- -------------
Balance -October 6, 1997 - $ - $ - $ - $ -
Issuance of common stock for cash ... 800,000 80 120 -- 200
Net loss ............................ -- -- -- (6,756) (6,756)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1997 ......... 800,000 80 120 (6,756) (6,556)
----------- ----------- ----------- ----------- -----------
Issuance of common stock for cash ... 40,000 4 14,996 -- 15,000
Issuance of common stock for services 3,000,000 300 (300) -- --
Nel loss ............................ -- -- -- (43,372) (43,372)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1998 ......... 3,840,000 384 14,816 (50,128) (34,928)
----------- ----------- ----------- ----------- -----------
Issuance of common stock for cash ... 1,520,000 152 134,848 -- 135,000
Nel loss ............................ -- -- -- (145,948) (145,948)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1999 ......... 5,360,000 536 149,664 (196,076) (45,876)
----------- ----------- ----------- ----------- -----------
Net loss ............................ -- -- -- (13,673) (13,673)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 2000 ......... 5,360,000 536 149,664 (209,749) (59,549)
----------- ----------- ----------- ----------- -----------
Stock issued for services ........... 875,000 87 253,663 -- 253,750
Stock issued for subsidiary ......... 1,270,004 127 3,823 -- 3,950
Net loss ............................ -- -- -- (745,994) (745,994)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 2001 ......... 7,505,004 750 407,150 (955,743) (547,843)
----------- ----------- ----------- ----------- -----------
Stock issued for services ........... 300,000 31 92,969 -- 93,000
Stock issued for services ........... 73,550 7 22,058 -- 22,065
Net loss ............................ -- -- -- (416,005) (416,005)
----------- ----------- ----------- ----------- -----------
Balance - March 31, 2002 ............ 7,878,554 $ 788 $ 522,177 $(1,371,748) $ (848,783)
=========== =========== =========== =========== ===========
See accountant's review report.
3
MILITARY SALES GROUP, INC.
Statement of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
2002 2001
---- ----
Cash Flows from Operating Activities:
Net Loss ......................................... $(416,005) $ (97,422)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................... 10,626 9,009
Stock issued for services ....................... 115,065 --
Loss on disposal of equipment .................. 6,380 --
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable ..... 56,825 98,039
Decrease (Increase) in prepaids ................ 3,479 --
Increase (Decrease) in deposits ................ (2,812) --
(Increase) Decrease in inventory ............... (63,404) 6,615
(Decrease) in accounts payable ................. (7,664) (38,110)
Increase (Decrease) in accrued expenses ........ 236,000 1,578
--------- ---------
Net Cash Used in Operating Activities .............. (61,510) (20,291)
--------- ---------
Cash Flows from Investing Activities
Capital expenditures ............................. (1,912) --
--------- ---------
Cash Flows Used in Investing Activities ............ (1,912) --
--------- ---------
Cash Flows from Financing Activities:
Bank overdraft ................................... (1,349) 29,301
Proceeds from sale of stock ....................... -- --
Proceeds (payments) from notes payable - net ...... 119,352 (9,010)
--------- ---------
Cash Flows Provided by Financing Activities ........ 118,003 20,291
--------- ---------
Net Increase (Decrease) in cash and cash equivalents 54,581 --
Cash and cash equivalents - beginning of period .... -- --
--------- ---------
Cash and cash equivalents - end of period .......... $ 54,581 $ --
========= =========
Supplemental information:
Cash paid for interest ......................... $ 6,170 $ 1,265
========= =========
Cash paid for income taxes ..................... $ -- $ --
========= =========
See accountant's review report.
4
NOTE 1 - GENERAL
NATURE OF BUSINESS
On October 15, 2001, our Company, formerly known as Bactrol Technologies, Inc.,
and Military Resale Group, Inc., a Maryland corporation that was formed on
October 6, 1997 ("MRG-Maryland"), executed a Stock Purchase Agreement pursuant
to which 98.2% of MRG's stock was effectively exchanged for a controlling
interest in a publicly held "shell" corporation (the "Reverse Acquisition") that
concurrently changed its name to Military Resale Group, Inc. This transaction is
commonly referred to as a "reverse acquisition." For financial accounting
purposes, this transaction has been treated as the issuance of stock for our net
monetary assets, accompanied by a recapitalization of MRG-Maryland with no
goodwill or other intangible assets recorded. For financial reporting purposes,
MRG-Maryland was considered the acquirer, and therefore, the historical
operating results of Bactrol Technologies, Inc. are not presented.
NOTE 2 - BASIS OF PRESENTATION
In the opinion of our management, the accompanying unaudited condensed financial
statements include all normal adjustments considered necessary to present fairly
our financial position as of March 31, 2002, and results of operations and cash
flows for the three months ended March 31, 2002 and 2001. Interim results are
not necessarily indicative of results for a full year.
The condensed financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in our audited financial
statements and notes for the fiscal year ended December 31, 2001.
NOTE 3 - INVENTORY
Inventory of as March 31, 2002 consisted of the following:
Finished Goods $315,834
-------
$315,834
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
CERTAIN STATEMENTS IN THIS REPORT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO
BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVE",
"EXPECT", "ANTICIPATE", "INTEND" AND "PLAN" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE STATEMENT
WAS MADE. BECAUSE OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK," AS DEFINED BY
THE REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION, THE SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS DOES NOT APPLY TO STATEMENTS BY OUR COMPANY.
Our business and results of operations are affected by a wide variety of
factors that could materially and adversely affect us and our actual results,
including, but not limited to: (1) the availability of additional funds to
enable us to successfully pursue our business plan; (2) the uncertainties
related to the effectiveness of our technologies and the addition of new
products and suppliers; (3) our ability to maintain, attract and integrate
management personnel; (4) our ability to complete the development of our
proposed product line in a timely manner; (5) our ability to effectively market
and sell our products and services to current and new customers; (6) our ability
to negotiate and maintain suitable strategic partnerships and corporate
relationships with suppliers and manufacturers; (7) the intensity of
competition; and (8) general economic conditions. As a result of these and other
factors, we may experience material fluctuations in future operating results on
a quarterly or annual basis, which could materially and adversely affect our
business, financial condition, operating results and stock price.
Any forward-looking statements herein speak only as of the date hereof. We
undertake no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The following discussion should be read in conjunction
with the financial statements and related notes appearing elsewhere in this
Report.
Prior to November 15, 2001, we did not generate any signification revenue,
and accumulated no significant assets, as we explored various business
opportunities. On November 15, 2001, we acquired 98.2% of the issued and
outstanding capital stock of Military Resale Group, Inc., a Maryland corporation
("MRG-Maryland"), in exchange for a controlling interest in our publicly-held
"shell" corporation ("the Reverse Acquisition"). For financial reporting
purposes, MRG-Maryland was considered the acquirer in such transaction. As a
result, our
6
historical financial statements for any period prior to November 15, 2001 are
those of MRG-Maryland.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2001
REVENUE. Total revenue for the three months ended March 31, 2002 of
$1,417,258 reflected an increase of $326,851, or approximately 30%, compared to
sales of $1,090,407 for the three months ended March 31, 2001. Our revenues are
derived in either one of two ways. In the majority of instances, we purchase
products from manufacturers and suppliers for resale to the commissaries we
service. In such cases, we resell the manufacturer's or supplier's products to
the commissaries at generally the same prices we pay for such products, which
prices generally are negotiated between the manufacturer or supplier and the
Defense Commissary Agency ("DeCA"). Revenue is recognized as the gross sales
amount received by us from such sales ("resale revenues"), which includes (i)
the purchase price paid by the commissary plus (ii) a negotiated storage and
delivery fee paid by the manufacturer or supplier. In the remaining instances,
we act as an agent for the manufacturer or supplier of the products we sell, and
earn a commission paid by the manufacturer or supplier, generally in an amount
equal to a percentage of the manufacturer's or supplier's gross sales amount
("commission revenues"). In such cases, revenue is recognized as the commission
we receive on the gross sales amount.
Resale revenue for the three months ended March 31, 2002 of $1,357,584
reflected an increase of $332,601, or approximately 32%, compared to resale
revenue of $1,024,983 for the three months ended March 31, 2001. For the three
months ended March 31, 2002, approximately 67% of our gross profit was derived
from sales involving resale revenue compared to approximately 45% for the three
months ended March 31, 2001. These increases were attributable primarily to the
addition of the new products we began supplying to commissaries during the
fourth quarter of fiscal 2001, including Slimfast, L'eggs, Bush Beans and
Rayovac Batteries, and during the first quarter of fiscal 2002, including a line
of feminine hygiene products and a line of infant feeding products supplied by
Playtex Products, Inc., which we sell on a resale basis, as well as the
implementation of our long-term strategy to increase our ratio of sales of
products we sell on a resale basis, rather than a commission basis, due to the
payment discounts we often receive from the manufacturers and suppliers of the
goods we purchase for resale.
Commission revenue for the three months ended March 31, 2002 of $59,674
reflected a decrease of $5,750, or approximately 9%, compared to commission
revenue of $65,424 for the three months ended March 31, 2001. For the three
months ended March 31, 2002, approximately 33% of our gross profit was derived
from sale involving commission revenue compared to approximately 55% for the
three months ended March 31, 2001. These decreases were attributable primarily
to the implementation of our long-term strategy to increase our ratio of sales
of products sold on a resale basis, rather than a commission basis. We cannot be
certain as to whether or not these trends will continue; however, in the long
term we are seeking to increase the ratio of our sales of products sold on a
resale basis, rather than a commission basis, because we believe we can increase
our profitability on such sales by taking advantage of payment
7
discounts frequently offered by the manufacturers and suppliers of such
products. To do so, we intend to continue to seek to add new products that we
can offer to commissaries on a resale basis from our existing manufactures and
suppliers and from others with whom we do not currently have a working
relationship.
In March 2002, we entered into an agreement with Playtex Products, Inc. to
distribute, on a resale basis, approximately 70 Stock Keeping Units (SKUs)
manufactured or supplied by Playtex, including a line of feminine hygiene
products and a line of infant feeding products. We have been advised by Playtex,
and verified with DeCA, that sales by Playtex in 2001 to the commissaries we
currently service amounted to approximately $350,000. However, there can be no
assurance that our sales of Playtex products will reach such amount, and the
amount of our actual sales of Playtex products may differ materially from the
amounts sold by Playtex in 2001 as a result of one or more of the factors
described above, among others.
In April 2002, we began distributing products for Pfizer, Inc. under an
agreement that provided for the distribution of approximately 114 SKUs of Pfizer
products. In June 2002, the agreement was terminated by Pfizer because we were
unable to consistently meet our delivery obligations due to our insufficient
working capital. During the term of our agreement with Pfizer, we received
revenue from the sale of Pfizer products of approximately $168,000. Management
believes the termination of the Pfizer agreement will not have a material
adverse impact on our results of operations for fiscal 2002.
In October 2002, we added to our supplier network the Hillshire Farm and
Kahn's product groups of Sara Lee Foods-USA and certain consumer products
distributed by Chattem, Inc. Hillshire Farm and Kahn's are product lines of
packaged meats and hams. Chattem is a manufacturer of branded consumer products,
principally over-the-counter healthcare products, including Aspercreme, Gold
Bond, Sportscreme, Pamprin, Dexatrim, Rejuvex and Flexall. We have been advised
by Sara Lee Foods-USA, and verified with DeCA, that sales of Hillshire Farm and
Kahn's products in 2001 to the commissaries we currently service amounted to
approximately $950,000. We have been advised by Chattem, and verified with DeCA,
that sales of Chattem's line of products in 2001 to the commissaries we
currently service amounted to approximately $200,000. However, there can be no
assurance that our annual sales of these products will reach such amounts, and
the amount of our actual sales of Hillshire Farm and Kahn's Products and Chattem
products may differ materially from the amounts sold by Sara Lee Foods-USA and
Chattem, respectively, in 2001.
Management believes our long-term success will be dependent in large part
on our ability to add additional product offerings to enable us to increase our
sales and revenues. However, we believe our ability to add additional product
offerings is dependent on our ability to obtain additional capital to fund new
business development and increased sales and marketing efforts. We are currently
in discussions with a number of other manufacturers and suppliers in an effort
to reach an agreement under which we can distribute their products to the
military market. While there can be no assurance that we will do so, we believe
we will be successful in negotiating agreements with a number of such suppliers
and manufacturers.
8
To date, all of our sales revenue has been generated from customers located
in the United States.
COST OF GOODS SOLD. Cost of goods sold consists of our cost to acquire
products from manufacturers and suppliers for resale to commissaries. In
instances where we sell products on a commission basis, there is no cost of
goods sold because we act as an agent for the manufacturer or supplier and earn
only a commission on such sales. During the three months ended March 31, 2001,
cost of goods sold increased by approximately $267,503, or approximately 27.5%,
to $1,238,921 from $971,418 for the three months ended March 31, 2001. This
increase was attributable primarily to the addition of new products that we sell
on a resale basis. We cannot be certain as to whether or not this trend will
continue; however, in the long term we are seeking to increase the ratio of our
sales on a resale basis, as discussed above.
GROSS PROFIT. Gross profit for the three months ended March 31, 2002
increased by approximately $59,348, or approximately 50%, compared to the three
months ended March 31, 2001, from $118,989 for the three months ended March 31,
2001 to $178,337 for the year ended March 31, 2002. This increase was
attributable primarily to the addition of new products that we purchase for
resale to the commissaries we service.
OPERATING EXPENSES. Total operating expenses aggregated $383,172 for the
three months ended March 31, 2002 as compared to $215,146 for the three months
ended March 31, 2001, representing an increase of $168,026, or approximately
78%. The increase in total operating expenses for the three month period ended
March 31, 2002 was attributable primarily to increased professional fees of
$85,230 resulting primarily from the costs of the preparation of a registration
statement under the Securities Act of 1933 relating to a proposed offering of
equity securities; increased occupancy expense of $28,949, or approximately
110%, resulting from our move to larger office and warehouse facilities in
September 2001 and increased general and administrative expenses of $63,539, or
approximately 130%, resulting primarily from increased premiums on health and
workers' compensation insurance and the issuance of shares of our common stock
for consulting services rendered to the Company.
INTEREST EXPENSE. Interest expense of $211,170 for the three months ended
March 31, 2002 reflected an increase of $209,905 as compared to interest expense
of $1,265 for the three months ended March 31, 2001. The increase in interest
expense was attributable primarily to interest expense resulting from the
recognition of the beneficial conversion feature (the right to convert debt into
shares of our common stock at a discount to the fair market value of our common
stock) of $205,000 aggregate principal amount of convertible promissory notes
issued in the first quarter of 2002.
NET LOSS. For the reasons discussed above, we incurred a net loss of
$416,005 for the three months ended March 31, 2002 as compared to a net loss of
$97,182 for the three months ended March 31, 2001.
9
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, we had a cash balance of $54,581. Our principal source
of liquidity has been borrowings. Since November 2001, we have funded our
operations primarily from borrowings of approximately $410,000. In the fourth
quarter of 2001 and the first and second quarters of 2002, we issued $260,000
aggregate principal amount of convertible promissory notes (the "9% Convertible
Notes") that mature on December 31, 2002 and bear interest at the rate of 8% per
annum prior to June 30, 2002 and 9% per annum thereafter. In April 2002,
$150,000 aggregate principal amount of 9% Convertible Notes (and $2,380 accrued
interest thereon) was converted by the holders into an aggregate of 1,993,573
shares of our common stock. The remaining 9% Convertible Notes are convertible
at any time and from time to time by the noteholders into a maximum of 1,153,900
shares of our common stock (subject to certain anti-dilution adjustments) if the
9% Convertible Notes are not in default, or a maximum of 2,307,800 shares of our
common stock (subject to certain anti-dilution adjustments) if an event of
default has occurred in respect of such notes. The terms of the 9% Convertible
Notes require us to register under the Securities Act of 1933 the shares our
common stock issuable upon conversion of the 9% Convertible Notes not later than
December 31, 2002.
In the third quarter of 2002, we issued $105,000 aggregate principal amount
of convertible promissory notes (the "8% Convertible Notes") that mature on
either June 30, 2003 or July 30, 2003 and bear interest at the rate of 8% per
annum. The 8% Convertible Notes are convertible at any time and from time to
time by the noteholders into a maximum of 489,667 shares of our common stock
(subject to certain anti-dilution adjustments). The terms of the 8% Convertible
Notes require us to register under the Securities Act of 1933 the shares of our
common stock issuable upon conversion of the 8% Convertible Notes not later than
December 31, 2002.
Our current cash levels, together with the cash flows we generate from
operating activities, are not sufficient to enable us to execute our business
strategy. As a result, we intend to seek additional capital through the sale of
up to 5,000,000 shares of our common stock. In December 2001, we filed with the
Securities and Exchange Commission a registration statement relating to such
shares. Such registration statement has not yet been declared effective, and
there can be no assurance that the Securities and Exchange Commission will
declare such registration statement effective in the near future, if at all. In
the interim, we intend to fund our operations based on our cash position and the
near term cash flow generated from operations, as well as additional borrowings.
In the event we sell only a nominal number of shares (i.e. 500,000 shares) in
our proposed offering, we believe that the net proceeds of such sale, together
with anticipated revenues from sales of our products, will satisfy our capital
requirements for at least the next 12 months. However, we would require
additional capital to realize our strategic plan to expand distribution
capabilities and product offerings. These conditions raise substantial doubt
about our ability to continue as a going concern. Our actual financial results
may differ materially from the stated plan of operations.
10
Assuming that we receive a nominal amount of proceeds from our proposed
offering of common stock, we expect capital expenditures to be approximately
$200,000 during the next twelve months, primarily for the acquisition of an
inventory control system. It is expected that our principal uses of cash will be
to provide working capital, to finance capital expenditures, to repay
indebtedness and for other general corporate purposes, including sales and
marketing and new business development. The amount of spending for any
particular purpose is dependent upon the total cash available to us and the
success of our offering of common stock.
At March 31, 2002, we had liquid assets of $438,814, consisting of cash and
accounts receivable derived from operations, and other current assets of
$342,281, consisting primarily of inventory of products for sale and/or
distribution. Long term assets of $177,317 consisted primarily of warehouse
equipment used in operations.
Current liabilities of $1,723,735 at March 31, 2002 consisted of $1,039,543
of accounts payable and $387,535 for the current portion of notes payable, of
which approximately $210,000 was payable to our officers or our other
affiliates.
Our working capital deficit was $942,640 as of March 31, 2002 for the
reasons described above.
We used cash of $61,510 in operating activities during the three months
ended March 31, 2002, primarily as a result of the net loss incurred during the
period.
We used net cash of $1,912 in investing activities during the three months
ended March 31, 2002, all of which was used for capital expenditures.
Financing activities consisting primarily of short-term borrowings provided
net cash of $118,003 during the three months ended March 31, 2002. Subsequent to
March 31, 2002, we borrowed an additional $125,000 pursuant to the issuance of
8% Convertible Notes and 9% Convertible Notes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in Colorado Springs,
Colorado on November 4, 2002.
MILITARY RESALE GROUP, INC.
By: /S/ ETHAN D. HOKIT
------------------------------
Name: Ethan D. Hokit
Title: President and Chief
Operating Officer (Principal
Accounting Officer and Principal
Financial Officer)
11
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to 18 U.S.C. 1350
(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, Edward T. Whelan, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Military Resale
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /S/ EDWARD T. WHELAN
--------------------
Name: Edward T. Whelan
Title: Chief Executive Officer
November 4, 2002
12
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to 18 U.S.C. 1350
(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)
I, Ethan D. Hokit, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Military Resale
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /S/ ETHAN D. HOKIT
------------------
Name: Ethan D. Hokit
Title: Chief Financial Officer
November 4, 2002
13